Trusting platforms

There’s actually 2 levels of trust here. The first is knowing and trusting the person you’re buying from. And if you don’t know who they are, then you must move on to the second level of trust, which is do you know and trust the platform the person is using.

The ability to have “second order trust” is one of many reasons the internet has made so many institutions obsolete. Take the SEC’s role in policing private companies that market themselves to potential investors. This was sensible consumer protection back when the government was arguably the only organization that had the means and incentives to identify fraudulent investment schemes. But today we have many examples of websites that’ve built mechanisms for reliably tracking the reputations of individuals and organizations. This means the SEC could – in theory – make the unit of regulation platforms instead of investors and startups (something the crowdfunding bill being considered by Congress seems to do at least in part), which in turn could unleash a new wave of innovation among crowdfunding platforms and crowdfunded startups.